Saturday, January 31, 2009

When a reporter brought up the fact that Al Queda was not in Iraq prior to the invasion, former president Bush has been reported to have said 'So What.' Of course he has been greatly ridiculed about this.That is just one exhibit of ignorance in the media, which may be the reason for the ignorance that many American people have about this war. Many politicians and those in the media love to say 'Bush Lied' and want to impeach him for his 'War Crimes.' Lets start off by looking at some of the 'lies', myths, and misconceptions that many Americans have come to accept due to media ignorance. ( or is it just media bias, what is the difference).

The first myth is the belief that the war on terrorism should be focused exclusively on Al-Queda. If Al-Queda was not in Iraq, Iraq was not a problem, and we should never have invaded. Afghanistan is the central front on the war on terror, while Iraq was just a distraction. Another myth is that the only other justification for going into Iraq was because Saddam Hussein had weapons of mass destruction. Both of these myths lead many to conclude that Bush misled us, or he lied, and the war was illegal, and he should be prosecuted for war crimes.

Let's start with the simplest lie first. When we look at the bipartisan authorization to use force in Iraq, only about a quarter of the reasons given for the invasion had to do with weapons of mass destruction. Once it appeared that no smoking gun would be found, democrats and the media found a political opportunity to hang George W. Bush. All of a sudden, what was once agreed to be the central front on the war on terror, became a 'wild cowboy' finishing his 'daddy's war.' It turns out that the media and the democrats are the ones creating the fabrications. When you look at the original justifications for going into Iraq, most of the reasons had to do with removing a tyrant and enforcing the cease fire with Iraq that had been violated for years. Now in a post 911 environment, it was very dangerous for the U.S. to maintain such a position of weakness with an middle eastern government.If George Bush is guilty of war crimes, then so should be every member of congress that gave authorization to invade in the first place.

The second myth is that it was important that Al Queda be in Iraq. The problem with terrorism is much larger that just Al Queda. The heart of the problem is to convince radical Muslims to reject 'jihad of the sword' and accept the mainstream philosphy of 'jihad of the heart'. We must get the middle east to embrace 'modernization without westernization'.

According to Najib Razak, Deputy Prime Minister of Malaysia, Islam is misunderstood:

"We like to say that we are fundamentalist; but that is a different connotation in the west. Because the West uses fundamentalism as equated to extremism. When we say we are fundamentalist, we pray five times a day for example. But in the same manner we reject violence, we reject extremism, we are a very pluralistic society, because that is what Islam is all about. Islam protects other religions; Islam allows other religions to exist, to co-exist with Islam. And that is the practice in Malaysia."

'Incredibly many Americans think that somehow Islam is incompatible with democracy, or that traditional Muslims don’t want democracy. In reality, a majority of the world’s Muslims today live under democratic governments—in Indonesia, Malaysia, India, Bangladesh, Nigeria, and Turkey, not to mention Muslims living in Western countries. There is nothing in the Koran or the Islamic tradition that forbids democracy.'

In another article D'Souza goes on to say:

'Muslims don't reject modernity or the West: rather, they embrace what may be termed "1950s America" while rejecting the libertine values of the 1960s."

Modernization without westernization (westernization referring to contemporary cultural values of the American left) is the worst nightmare for extremist Muslims.Once extremist Muslims realize that their acts of terror will not stop the spread of global capitalism, but instead encourage the U.S. to take an active role militarily in helping mainstream Muslims establish modernized democracies in the middle east, the stakes of terrorism become quite large. That is why hundreds of Muslims who espouse extremist views have flocked to Iraq to stop what what may be a revolutionary change in the middle east.

Again fron D'Souza:

'Democracy, even fragile democracy, would refute the pessimism of history and provide an example to the rest of the Muslim world. And if democracy began to spread to other countries—perhaps Iran, perhaps Egypt—we could see the beginnings of an historical transformation no less staggering than the transformation of the former Soviet Union.'

and

‘Iraq represents America’s initiative not to establish democracy everywhere but to establish democracy somewhere. Bin Laden and the Islamic radicals want America to fail in Iraq not because they fear democracy per se but because they fear pro-American democracy.... Iraq is America’s best chance to promote traditional Islam as a viable alternative to radical Islam.’

For these reasons Iraq truly represents the central front for the war on terror. Was Al-Queda there before the invasion? No? So What.

How does a free market oriented blogger like myself approach the issue of government funding and farm programs?

There are two things that I would like to point out regarding this issue.

1) Total spending on agriculture comprises 1% of the federal budget. Of that amount, less than half is allocated to the producer. The bulk of the rest is spent on aid to the poor and school lunch programs.

2) Despite that the funding is a small proportion of total federal spending, I admit there are some market distortions that result from these programs.

One Iowa State University economist has pointed out that up to 1/3 of the price of farmland can be attributed to government payments. In fact many producers have expressed that government programs have increased the price of land and impeded their ability to expand their operation and remain competitive. It seems that while many producers favor maintaining a safety net, they are also utilizing technology, crop insurance, and marketing tools to manage much of the risk characteristic to their market.

We no longer see the commodity surpluses from farm programs like we did in my grandfather's day. Nor do we see the chronic shortages of food that characterized Soviet agriculture. However, if we look at government interventions outside the ag sector, we are plagued with these problems.

Take for instance the auto industry. One thing that plagues the auto industry is the surplus of low quality high fuel economy cars that noone wants to drive. Corporate average fuel economy (CAFE) standards forced automakers to overproduce these cars instead of the trucks and SUV's that Americans have revealed a preference for even in an environment of high fuel prices. ( see this article from Forbes and my other posts here ) Instead, if left to the market, the auto industry could have focused resources on the long term problem of building more fuel efficeint trucks and SUV's vs the immediate problem of meeting CAFE requirements.

And look at the current housing/financial market collapse. Could this have happened without major government interventions? Every time the federal reserve meets to 'set' the federal funds rate, they are engaging in the social planning of interest rates. i.e. depending on their policy stance, they are effectively setting a floor or cieling on interest rates. When investers react, resources get channeled into assets at an abnormal rate, often leading to a 'bubble'. This time we got a 'surplus' of housing on the market, as well as a 'surplus' of risky financial instruments related to housing. Eventually this 'malinvestment' must be corrected, leading to a bust. Many economists believe that this effect had much to do with the current financial problems we are experiencing today. ( see Walter E. Williams post on Town Hall for a good discussion)

Agricultural programs are not the drag on our economy that they are made out to be when compared to government interventions in other industries. That is why my posts are often more concerned with interventions in the ag industry that could be detrimental to our ability to provide safe, healthy, environmentally friendly, and abundant food. We don't want government interventions to cripple our industry like they have others, as I mentioned here. With the amount of lobbying, rent seeking, and government intervention that goes on across the board in all industries, Agriculture does not stand out any more than government programs related to the financial auto, oil, defense, construction, retail, education, medical, cosmetic... industries.

Because agricultural production is very much an export-oriented enterprise, free trade is essential to opening up markets for food and fiber. Further, given the free market solutions to pollution ( via the use of biotechnology, GPS & potential for selling carbon credits) that the ag industry provides, it is not accurate to characterize the agricultural industry as having a prominent interventionist overtone in relation to other sectors of the economy.It turns out that modern agriculture is very much a free market driven industry. As a result our farmers are competitive, independent, resilient, and the best in the world.

Sunday, January 18, 2009

Recently it has came out that Barak Obama plans to take the idea of rasing gasoline taxes off the table. This is a great call, and may show testament that we have elected a leader that will bring real ‘change’ to the Whitehouse. Genuine change would mean that he is going to have to ruffle some feathers among those members of his party that have so long ridiculed free markets, the auto industry, and thrash and burn environmental policies. This blog post from the Washington Post/Newsweek is testament to the feather ruffling that will be required if we are going to see more ‘change’ from the democratic party. The author starts off by stating:

“But by failing to raise the gasoline tax, the president-elect risks complicating another problem: Fixing the U.S. automobile industry.”

Actually he doesn’t. The author ( and many in the media and politicians) want to perpetuate the myth that the market, or the automobile industry has something inherently wrong with it that needs fixing. Really, all that needs to be done is for government to get out of the way and let them do what they do best.

“Here's the problem. Obama and leading members of Congress keep saying they want ailing automakers to make more fuel-efficient vehicles. But the automakers in the past made more money on the guzzlers”

Well let’s ask why they make more money on gas guzzlers? Could it be that these are the cars that American’s want to buy? Over the last 10 years what were the top selling models? – TRUCKS and SUV’s. Even with increased gas prices ( which had a lot of help from Congress by the way, ) the top 2 selling vehicles in the US for 2008 were trucks.

“in the future, they will have trouble charging enough to make money on new cars using costly new technologies for plug-in or hybrid cars. So the car company of the future may be a money-losing operation, just like the car company of the present.”

Well, the author may be correct, but for the wrong reasons. A company fails to make money when they fail to provide products or services that consumers want. ( like TRUCKS &SUV’s). Why have the automakers been losing money? Because (harmful and deadly) fuel economy standards have forced automakers to make a lot of small fuel efficient cars that no one wants to buy. Resources that could have went into the costly engineering problem of developing more fuel efficient TRUCKS and SUV’s over time have hastily been funneled to meet immediate regulatory demands. Further, automakers not only had to waste resources building these low quality cars that no one wants to drive, but they had to absorb heavy losses because they don’t sell. Were it not for the regulatory requirements imposed ‘yesterday’ it is likely that we would have more fuel efficient options in TRUCKS & SUV’s for the higher gas prices ‘today.’

So yes, forcing automakers to produce more cars using costly new technologies for plug-in or hybrid cars that most people don’t want to drive will likely lead to a car company of the future that is a money losing operation, ‘just like the present.’

‘Raising the gasoline tax would increase consumer demand for more fuel-efficient vehicles. That could help automakers charge more for them and make more money on sales of plug-ins, hybrids or more efficient conventional engines.’

Well, it is true that if we use the force and coercion of government to get people to buy cars they don’t want, those selling the cars will benefit. Most environmental legislation and government regulation in general involves taking from one party and giving to another in some way shape or form by using government. There is always a disingenuous justification that it will be ‘good’ for the 'consumer' or the environment. It is what economists refer to as ‘rent seeking’.

‘Not surprisingly, Ford and General Motors both belong to the U.S. Climate Action Partnership, which this week proposed a detailed blueprint for a cap-and-trade system for carbon dioxide emissions. Such a system would put a price on carbon and would effectively tax gasoline and all other fossil fuels.’

Yeah, ‘not surprisingly’ big business is engaging in rent seeking behavior. The problem however, is that while there may be some consensus on the causes of ‘global warming’ there is NO CONSESUS on the actual effects, or what an optimal carbon tax should be to prevent it without doing more harm to the economy, public health, the environment, or the poor.

“After being burned last summer by sky-high gasoline prices, do Americans really need higher gasoline taxes to get them to buy fuel-efficient cars? Yes, actually. Americans have an astonishingly short memory about gasoline prices. Sales of the Toyota Prius have hit the skids now that gasoline prices are back below $2 a gallon. And sales of SUVs are relatively strong compared to many other models.”

Frankly this is a very condescending view of the American consumer. The fact that Americans prefer to drive TRUCKS & SUVs over GO-CARTs like the PRIUS does not mean they have a short memory. Sales of SUVs have been relatively strong over the last 10 years, and automakers have done the right thing to continue to make cars that Americans want to buy. Gasoline at $4 /gallon reflected a strong economy, uncertainty in the Middle East, and lack of commitment to developing existing fossil fuel resources. $2 / gallon fuel today reflects the collapse of the financial market ( again due to mis-priced risk via government distortions)

"If Obama did want to raise gasoline taxes without imposing a hardship on Americans at a time of economic duress, there are (at least) two ways of going about it other than throwing it out the car window. First, he could cut other taxes to compensate people for the fuel tax. Second, he could delay the effective date of the tax, or increase it in small steps over time. A phased-in tax increase would still have a big impact on the choices people make when purchasing cars, which tend to stay on the road for 10 years or so. "

These may actually be great ideas. Taxing carbon actually makes a lot more sense than fuel economy standards and emissions standards.( the author actually goes on to say this) But again we are way too uncertain about what the price of carbon should be, and so we don’t know how much the tax should be. The harm done could be greater than the benefit.

The best solution would be to strike down corporate fuel economy standards, relax emissions standards ( which make the engineering for fuel economy so difficult) forget about a tax, and let the automakers plow that money into making better TRUCKS & SUVs. Over time, if fuel becomes more scarce and gasoline prices increase, automakers will be forced to make more fuel efficient TRUCKS & SUVs or consumers will adapt their choices to other vehicles that are more fuel efficient.

Of course, to prevent huge spikes in energy prices ( which hurt consumers and automakers severely this past year )we need continued commitment to developing existing energy sources including ethanol, wind, natural gas etc. and keep government out of the housing and financial markets ( recall, after financial stocks took a beating once they started correcting for government distortions, many investors took on commodities driving up the cost of oil).

About Me

My primary interests are in applied econometrics with applications related to genomics, nutrition, health, and the environment. I have a quantitative and analytical background in the areas of applied economics and statistical genetics. I leverage my training with experience in machine learning and predictive modeling using SAS, R, and Python to solve problems. I can understand and produce peer reviewed research and discuss the application with a scientist, sales representative, or the customer whose problem ultimately drives the analysis. I can code my own estimators, execute SQL queries, parse text files, and visualize a social network.